Trend of decreasing average consumer debt levels may give way as pockets of financial stress emerge
With many Canadians pushed into a regime of forced savings amid lockdowns and stay-at-home orders, the past year has seen a broad decrease in average consumer debt levels. But as debt deferral programs come to an inevitable end, there are emerging signs of renewed household borrowing and financial stress.
According to newly reported figures from Equifax Canada, more than three million Canadians have taken advantage of credit payment deferral programs since the pandemic began, of whom four out of five have completely exited the use of such programs.
As of Q4 2020, average consumer debt, excluding mortgages, declined 0.8% quarter-over-quarter and 3% year-on-year to $23,043. That was primarily due to a gradual lowering of credit card balances since March 2020 as consumers spent less and paid down more of their balance every month.
And even as consumers ended their use of deferral programs, the 90+ day delinquency rate for non-mortgage products held at 0.98% in Q4, with the same rate for mortgages at 0.16%.
Still, Canadian consumers aren’t in the clear. “Deferral programs are ending and pockets of financial stress are starting to emerge for some consumers,” Rebecca Oakes, AVP of Advanced Analytics at Equifax Canada, said in a statement. “Credit card spend is also starting to rise again.”
Q4 saw a continued rise in early-stage delinquencies, defined by an individual missing one or two months of payments. The 30+ day delinquency rate for mortgages jumped by 31% during the quarter, while instalment loans saw a more marked escalation of 76%.
Amid conditions of elevated demand for housing and depressed interest rates, new mortgages saw 22.1% year-on-year growth in volume during Q4 2020. The average mortgage loan amount climbed by 14.4%, the largest annual jump since 2015. First-time homebuyers drove increasing loan amounts for the quarter, with the segment growing by a higher-than-average annual rate of 26.9%.
“Rising prices in real estate hot spots have led to first-time homebuyers taking on more mortgage debt than ever in order to get their foot on the property ladder,” said Oakes.
Overall consumer debt increased to $2.07 trillion, a 1.5% uptick over Q3 and 4.1% over Q4 2019, amid increased mortgage activity and rising house prices. Meanwhile, new auto finance and instalment loans dropped by 8.4% quarter-on-quarter and 21.5% year-over-year, and new credit cards saw a 10% increase over the prior quarter.
